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July 3, 2022

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French carmaker Renault to sell Russian operations to Moscow

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Russia will take control of French car manufacturer Renault’s operations in the country and resurrect a Soviet-era auto brand, officials said Monday, marking the first major nationalization of a foreign business since the war in Ukraine began.

Renault said it would sell its majority stake in Avtovaz, a Russian car company best known for its Lada brand, to a state-run research institute known as NAMI.

Renault’s other Russia operations, primarily a factory in Moscow, will be sold to the Moscow city government. The mayor of the Russian capital, Sergei Sobyanin, said the city would bring back the Moskvich brand for cars made at the factory. Moskvich was a major auto brand in the Soviet Union but went into steep decline in the 1990s and vanished from the market in the early 2000s.

“Today, we have taken a difficult but necessary decision,” Renault CEO Luca de Meo said in a statement, “and we are making a responsible choice towards our 45,000 employees in Russia, while preserving the Group’s performance and our ability to return to the country in the future, in a different context.”

Renault didn’t give any financial details of its sales but said the deal included an option to buy back the Avtovaz stake in the next six years. Trade and Industry Minister Denis Manturov indicated last month to Russian media that the Avtovaz deal could be conducted for a symbolic one ruble.

Ministry official Denis Pak told state TV that the deal allows Avtovaz to keep making Renault’s Duster passenger car design, now badged as a Lada, and that the new Moskvich operation was likely to produce cars this year.

Selling gets Renault out of a bind that Western companies are facing as they determine whether to pull out of Russia and weather the hit to their income. But continuing to work in Russia after the invasion could risk damaging corporations’ reputations with customers. With an eye on avoiding unemployment, the Russian government has been urging reluctant foreign investors to either resume operations or sell to someone who will.

Renault’s announcement came the same day McDonald’s said it is moving to sell its Russian business, which includes 850 restaurants that employ 62,000 people. The fast food giant did not name a prospective Russian buyer but said it would seek one that will hire its workers and pay them until the sale closes.

The new Russian owners taking over Renault’s operations will have to grapple with a shortage of imported components for cars, especially electronics. The Russian auto-making sector is heavily dependent on international supply chains that have been disrupted by sanctions over the war, while getting deliveries from abroad has become more difficult and expensive.

The NAMI research institute has some experience developing luxury cars used by Russian leaders, including President Vladimir Putin, but on a much smaller scale than the sprawling Soviet-era Avtovaz plant, where Russian and foreign investors have for decades struggled to make mass-market cars profitably.

Nearly half a million vehicles were sold in Russia last year under Renault and Avtovaz brands.

Sobyanin, the Moscow mayor, outlined ambitious plans for the resurrected Moskvich brand on his blog, saying it would start with traditional engines but produce “in the future, electric cars,” in a partnership with Russian truck manufacturer Kamaz.

Sobyanin said the city was motivated by keeping jobs but stopped short of ruling out staff cuts, saying only that “we will try to keep the majority of the personnel working directly at the plant and for its subcontractors.”

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